Dial-A-Phone founders' £84m fortune

Dial-A-Phone founders' £84m fortune
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We made a decision a few years ago that we didn’t want to talk to you, but now we’re out of the industry, we are only too happy. I just don’t think anyone would be interested in us now.’

The founders of Dial-A-Phone have become close to an obsession for Mobile, after four years of ‘no comment’ responses.

The fact that a small company, with little more than a call centre in Kentish Town, was taking the same share of the contract market as Phones 4u and giving Carphone Warehouse an almighty fright made it a fascinating subject.

Dial-A-Phone had a business model alien to the rest of the market, and the complete radio silence from the company added to the mystique.

Now, two months after founders Jonathan Beck and Richard Frank agreed to sell the company to Phones 4u, they reveal how they built an online and off-the-page business which eventually saw them walk away with £9m from the sale, £15m of cash in the business, and a further £60m from insurance and ongoing revenue from networks in the coming years.

Frank explains the decision not to talk to the press: ‘We didn’t need to communicate to the trade, our employees, our customers or in business circles. It would only have served to flatter our egos and we’re not like that.’

The Henry Ford model
Dial-A-Phone was created by two entrepreneurial men who knew each other in their teenage years and came up with the Dial-A-Phone business in their mid 20s. Frank had been a key figure in the Cellphone group, a retailer and service provider, when the mobile industry first became mainstream in the early 90s. ‘“General dogsbody” was probably my job title back then,’ says Frank.

Beck, meanwhile, was cutting his teeth in the outbound call centre industry. He was quickly learning what worked and what didn’t in terms of operations and different commercial models. At the time, he was selling home improvement products.

Frank says: ‘It was apparent that there was a lot of margin in Jonathan’s business but no demand, and for me there was huge demand in mobile phones, but little margin.’

A business plan was set out in 1995 to create a business based on a super-efficient operation base. Beck’s father provided a big chunk of the early capital, which was quickly repaid.

The plan was to have one phone: the Nokia 101 (right) on a cheap tariff. ‘We wanted to make things accessible and cheap to attract the mass market, who were starting to become interested in phones,’ says Frank. ‘It was the Henry Ford model.’

Adverts were put in the press to generate customers, and it started disastrously, with just three sales on the first day. ‘We were very worried,’ says Beck. However, things changed the following day with 80 calls.

All about the systems

Beck’s decision to invest heavily in recording equipment, and use a heavily structured script caused a few disagreements in the early days.

Frank says: ‘I thought Jonathan was mad, but the script turned out to be priceless. No-one did it at the time, and there wasn’t the obvious value to it. Now, everyone uses it.’

Beck was adamant that the whole operation would need to be meticulously structured, from the moment an advert was placed, to a phone being delivered to the customer, and all the processes in between.

Dial-A-Phone’s success is grounded in the company’s processes. Beck explains: ‘We wanted to get systems in place, even in the early days, we assumed we would be a decent size business.’

Before the IT developers got to work, a system of trays on desks and runners was used, which mirrored the vision the owners had for the software. Beck says: ‘We were looking at developing software even prior to day one.’

Frank adds: ‘We were sitting with developers every day, speccing out every page of the software... the credit checking, order status, response to adverts, it goes on and on.

‘We started with just one IT developer, and then someone else came in. We thought having two IT developers on the payroll would be a one off, but it was an ongoing evolution that grew as a substantial but important cost.’

The Barclays deal

The business grew rapidly over the next few years, with both men heavily involved in the day-to-day running of the business.

A pivotal moment for Dial-A-Phone came as one network supplier asked Frank and Beck to buy a chunk of the business. ‘We never really thought about it because we were just going to work every day, but we thought we should step back and go to the market to get a value of it,’ says Beck.

This was at the height of the dotcom boom of the late 90s with huge amounts of cash sloshing around from potential backers. In Dial-A-Phone, investors saw a cash-generating company with sales climbing in a market that was growing just as fast.

The other beauty of the Dial-A-Phone model was that it was entirely elastic, with virtually no fixed costs. Opening physical stores was considered after encouragement from suppliers, but the owners pulled back because of the concern that it would disrupt its lean model, which is to link investment for staff and adverts proportional to the appetite of operators.

Frank adds: ‘Nothing could have prepared us for the venture capitalists. They were falling over each other to invest in us. They were far from coy.’

A deal was done with Barclays private equity at the turn of the millennium to take a share in the company in exchange for some investment.

Working with The Sun

The cash from Barclays enabled a new push from the owners to step up the game on three fronts.

First, launching a more credible website (which is now the core of Dial-A-Phone), spending more on advertising, and looking at new models for revenue.

The company also brought in former Caudwell man Andy Brown as managing director, whose time at Dial-A-Phone ended when the owners pursued a different model when the market contracted.

Dial-A-Phone became the shirt sponsor for Middlesbrough Football Club and started honing its adverts in the back of tabloid newspapers. It became the company most commonly associated with the term ‘off-the-page’.

The adverts are far from elegant, but the science behind them is startling. Frank and Beck developed a matrix that identified the effectiveness of specific deals, on specific pages on specific days.

Sales spiked up as Dial-A-Phone often had double page spreads in the back of The Sun or The Star.

The Sun was a tricky relationship because we got into a situation where we were very reliant on them and they knew it,’ says Frank.

Even though Dial-A-Phone was a daily advertiser, there weren’t improved commercial terms. ‘They were trying to get us to commit to a long-term advertising contract.

‘The papers weren’t suffering [with falling readerships] as they are now, and there was nothing like The Sun for giving you access to 3.5 million people everyday.’

However, Frank says Dial-A-Phone was criticised at the time for not entering into a long-term, cheaper deal, which appeared costly in the short term. ‘We probably could have saved a few quid at the time, but we were aware that if the networks were to pull back, we would have our hands tied with The Sun.’

It proved to be a prescient move as the effects could have been catastrophic, with the potential of even having to buy their way out of a long-term advertising contract.

After 2001, Dial-A-Phone was trying everything: scratchcards, inserts in catalogues, white-label deals with the likes of Argos and Comet, and even TV adverts.

Metrics were applied to cal

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